Untact Leaders Kakao and Naver Show Diverging Fortunes... Why?

Kakao Rebounds Even After Pfizer Vaccine... Naver Struggles to Recover
Kakao Expected to Achieve Record Quarterly Earnings in 4Q
Naver Faces Short-Term Operating Margin Decline Due to Various Investments

[Asia Economy Reporter Minwoo Lee] As the resurgence of the novel coronavirus infection (COVID-19) acts as a boon for untact (contactless) related stocks, the fortunes of Kakao and Naver (NAVER) are diverging. While Naver faces concerns over short-term profit margin declines, investor sentiment is focusing on Kakao, which continues stable growth.

According to the Korea Exchange on the 20th, Kakao recorded 367,500 KRW in early trading, up 0.55% from the previous day. This marks an increase of about 3.3% compared to the closing price of 355,500 KRW on the 11th. Previously, on the 10th, the stock price, which had fallen due to expectations of economic recovery following the announcement of Pfizer's COVID-19 vaccine development in the U.S., recovered to pre-vaccine announcement levels. In contrast, Naver (NAVER), also considered a leading untact stock, showed the opposite trend. After dropping more than 5% on the 10th to close at 283,000 KRW, it has struggled to recover. As of 9:18 a.m. on the same day, it was at 280,000 KRW, down 1.1% compared to the 10th.

The reason behind Kakao's stock resilience lies in favorable earnings forecasts. According to financial information provider FnGuide, Kakao's Q4 consolidated market consensus estimates are sales of 1.1978 trillion KRW and operating profit of 143.1 billion KRW. This represents growth of 41.31% and 79.74% respectively compared to the same period last year, with another record quarterly high expected following the previous quarter. It is analyzed that sales growth is accelerating across all business units including advertising, commerce, mobility, Pay, webtoons, and intellectual property (IP). Next year, the listing of subsidiaries such as Kakao Pay and the value increase of the mobility business are anticipated. Regardless of the untact era's activation, smooth growth is expected. Donghee Kim, a researcher at Meritz Securities, said, "Next year, Kakao's stock price will be driven by earnings growth along with a revaluation of subsidiary values as important momentum," adding, "Profit growth is expected as sales growth will outweigh cost increases."

On the other hand, Naver is expected to continue experiencing profit margin weakness until the first half of next year due to expanded investments amid the ongoing impact of COVID-19. Its webtoon brand in Japan, 'Line Manga,' is currently executing large-scale marketing expenses to reclaim the top market position. In Q3, the number of paying users and transaction volume of Line Manga increased by 46% and 40% year-on-year respectively, but various discount promotions have caused Naver's overall operating profit margin to drop by about 3 to 4 percentage points. In the fintech (finance + technology) sector, comprehensive investments are underway, including the expansion of offline payments through Naver Pay.

However, Naver's sluggishness is expected to be a short-term situation. It is currently a period of structural reform centered on fintech and shopping as two main pillars. Researcher Kim explained, "Naver's past revenue model heavily depended on search advertising, but now it is diversifying into commerce (shopping), fintech, and cloud business," adding, "As the company transitions from being like Google to Amazon, the current decline in operating profit margin is not a cause for concern."

This content was produced with the assistance of AI translation services.